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CHICAGO — A U.S. District Court judge in Chicago has dismissed the final count lodged against former Bear Stearns public finance banker P. Nicholas Hurtgen by federal prosecutors in connection with an extortion scheme involving a Chicago-area hospital seeking regulatory approval for a new hospital.

Hurtgen initially faced a series of charges when federal prosecutors first brought the case in 2005 as part of their Operation Board Games probe into state government corruption under former Gov. Rod Blagojevich.

Only a single count alleging that Hurtgen aided and abetted an attempted extortion scheme remained after a series of twists and turns in the case that included its dismissal, and second indictment followed by a plea agreement that was later withdrawn.

Federal prosecutors alleged that Hurtgen participated in a kickback scheme in which businessman Stuart Levine, then a member of a state board with oversight of hospital projects, promised regulatory approval for new facilities sought by Naperville-based Edward Hospital if it hired Kiferbaum Construction Co. Kiferbaum’s owner, Jacob Kiferbaum, was expected to provide Levine with kickbacks for help in winning the business.

After the U.S. Supreme Court’s June 2010 ruling in Skilling v. United States that had sweeping consequences for corruption cases nationwide, the fraud counts against Hurtgen were dropped and only one count of aiding and abetting attempted extortion remained. Hurtgen’s attorneys filed a motion to dismiss over the summer of 2010.

The top court’s ruling involved an appeal filed by former Enron chief executive officer Jeffrey Skilling, which challenged the federal statute that criminalizes schemes to defraud someone of “the intangible right to honest services” as unconstitutionally vague.

The Supreme Court in its decision narrowly limited the use of the honest-services statutes to direct bribery and kickback schemes. Prosecutors generally had more broadly applied it in both political and business corruption cases.

U.S. District Court Judge John F. Grady in an order last week agreed with Hurtgen’s attorneys that while the case did involve a traditional kickback scheme, it was between Kiferbaum and Levine, and the indictment failed to clearly state that Hurtgen knew of the intended kickbacks.

Grady’s Feb. 29 order granting the defense’s motion to dismiss described the basic issue before the court as being whether the final count could survive in light of the Skilling ruling. Under the broader application of the honest-fraud statutes, the count that Hurtgen had aided and abetted the scheme had withstood a challenge.

In applying the narrower definition, Grady said: “Now that 'honest services’ violations are limited to those involving bribes and kickbacks, and Hurtgen is not alleged to have known anything about Levin and Kiferbaum’s kickback scheme,” the count “fails to allege that the defendant knowingly aided and abetted an attempted extortion.” Grady presides in the federal court for the Northern District of Illinois, Eastern Division.

Randall Samborn, a spokesman for U.S. attorney Patrick Fitzgerald’s office, declined to comment on whether prosecutors planned to appeal Grady’s order or what other options were being considered. Hurtgen’s attorneys at Schiff Hardin LLP and Hurley, Burish & Milliken SC could not be reached for comment.

Prosecutors had argued against dismissal, asserting that the count was not affected by the Skilling ruling and that it could nevertheless survive under the application of other laws.

“Because an indictment for extortion need not allege a gain to the extortioner, only an economic loss to the victim, it is immaterial that the extortion count does not allege that defendant knew Levine was to receive a kickback from Kiferbaum,” prosecutors said in court filings.

The federal government first brought the charges against Hurtgen in May 2005, but Grady dismissed them case in March 2007. Hurtgen was then re-indicted in 2007 on six counts of aiding and abetting mail and wire fraud and one count of extortion. Prosecutors provided new details obtained from Levine, who by then was cooperating.

Hurtgen resigned in 2004 from the now-defunct investment bank’s Chicago office after reports began circulating of the alleged hospital scheme. He is a Wisconsin native who served as a top aide to former Wisconsin Gov. Tommy Thompson before joining Bear Stearns in 1995.

Facing a March 2009 trial date and possible prison time if he was found guilty, Hurtgen entered into a plea agreement to one of the aiding and abetting fraud counts and agreed to cooperate with prosecutors.

In his plea, Hurtgen admitted to pressuring Edward Hospital officials to use Kiferbaum in exchange for regulatory approval for a new $90 hospital and a $23 million office building.

Levine, who at the time in late 2003 and early 2004 was vice chairman of the Illinois Health Facilities Planning Board, orchestrated the scheme.

The hospital did not hire Kiferbaum and its application was denied. In a conversation with Edward’s chief executive officer soon after the vote, Hurtgen told her he could get the planning board to approve the projects if Kiferbaum was hired. For his assistance, Hurtgen asked that Edward Hospital use Bear Stearns to handle financing for the projects. The hospital still refused and its applications were denied. Both Levine and Kiferbaum eventually entered plea agreements.

When Hurtgen entered his plea, it raised questions over what information he might have for prosecutors in their case against Blagojevich and his advisors and aides on pay-to-play allegations involving the state’s 2003 $10 billion pension bond sale, for which Bear Stearns was co-book-runner.

In a plea agreement entered into by a former Blagojevich aide, it was alleged that Blagojevich and his advisers sought to profit from the bond sale. In picking Bear Stearns, they expected $500,000 in kickbacks from a Bear Stearns consultant that was paid $809,000 for its work on the deal.

In July, 2010, following the Skilling decision, Hurtgen withdraw his plea and began fighting the aiding and abetting attempted extortion charge. Fitzgerald’s probe was expanded, and narrowed in on Blagojevich, who was convicted of corruption last year and will begin serving a prison term later this month.